Dean-Willcocks (as liquidator of SJP Formwork (NSW) Pty Ltd) v Commissioner of Taxation

Judgment - ex tempore 1By Originating Process filed 22 October 2012 the Plaintiff, the Council of the City of Sydney ("the City") applied under s 444E, 445D, 447A and 600B of the Corporations Act 2001 (Cth) for leave to bring proceedings against Streetscape Projects (Australia) Pty Limited (subject to deed of company arrangement) ("Company"); for orders that a deed of company arrangement dated 28 August 2012 between the Company and its deed administrators be terminated under s 445D or 447A of the Act or, alternatively, be declared void under s 445G of the Act; and for an order under s 600B of the Act setting aside a resolution passed at the second meeting of creditors of the Company held on 9 August 2012 requiring the Company to execute the deed of company arrangement. The City also sought orders that the Company be wound up and that Mr David Lombe be appointed as liquidator of the Company. The deed administrators were joined as a party to the application but filed a submitting appearance. 2Detailed Points of Claim were filed by the City and a Defence was filed by the Company, which admitted some matters of fact and denied or did not admit other allegations made in the Points of Claim. Affidavits were filed in support of the application but ultimately were not read. On 16 August 2013, the Court was advised that the City and the Company had agreed upon certain orders (except for the question of costs) which would result in the deed of company arrangement being terminated and the Company being placed in liquidation with Mr David Lombe, who has consented to appointment, being appointed as its liquidator. The administrators, who as I noted above had entered a submitting appearance, did not take a position in respect of that order. A further issue has arisen, which I will address below, as to the manner in which a termination of the deed of company arrangement should be implemented, which is primarily relevant to the question of the ranking of the City's costs of the proceedings in a winding up. 3The City had originally sought a grant of leave to bring proceedings under s 444E of the Corporations Act, to the extent that such leave is necessary. Mr Golledge, who appears for the City, has indicated that he has formed the view that no such leave is necessary, and that may well be the case so far as application is made to set aside the deed of company arrangement. However, for more abundant caution, the City seeks and I propose to make an order granting leave to bring the proceedings under s 444E of the Corporations Act. It seems to me plain that this would be a proper case for leave, if such leave were necessary, in order to allow the challenges brought by the City to the Company's entry into the deed of company arrangement to be determined. 4The next question is whether the Court can make an order, by consent, that a deed of company arrangement be terminated pursuant to s 445D(1)(g) of the Corporations Act, which provides the Court may make an order terminating a deed of company arrangement if it is satisfied that the deed should be terminated for some other reason. The reference to "some other reason" is a reference to reasons other than those specified in s 445D(1)(a)-(f) of the Corporations Act. The Courts have commonly made orders setting aside deeds of company arrangement under s 445D(1)(g) in circumstances, inter alia, that a deed has a wrongful purpose or involves conduct contrary to public policy or that there is a public interest in a liquidator's investigation of the Company's affairs or the deed has otherwise become unworkable. The Points of Claim filed by the City in these proceedings raised allegations which were within that territory, including allegations as to discrimination between creditors, a future risk of insolvency of the Company by reason of adverse costs orders in the litigation in which it and the City is involved, and criticisms of the adequacy of the administrators' report in respect of certain matters and of dealings between persons associated with the Company and certain creditors in respect of proxies at the second meeting of the Company's creditors. As events have developed, there will be no finding as to the merits of those allegations, and they therefore do not support an order for winding up under s 445D(1)(g) of the Corporations Act. 5The question remains whether there is nonetheless some other reason to make the relevant order. Mr Golledge has drawn my attention to case law in respect of the s 588FF of the Corporations Act, where the courts have held that orders may be made by consent under that section, which provides the necessary basis for the court to be satisfied that payments constitute a voidable preference under that section: for example, Dean-Willcocks (as liquidator of SJP Formwork (NSW) Pty Ltd) v Commissioner of Taxation (No 2) [2004] NSWSC 286; (2004) 49 ACSR 325; Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87; Greig v Deputy Commissioner of Taxation [2011] QSC 129. It seems to me that the approach adopted in respect of that section is of limited assistance in this context. The courts have been prepared to treat consent in that setting, in litigation between the liquidator and a defendant, as amounting to an admission of the substantive matters which found relief. It does not seem to me that the Company's consent in this context can be so characterised, particularly where the allegations made in the proceedings are, to a substantial extent, as to the conduct of persons other than the Company. 6On the other hand, there are other contexts in the Corporations Act in which orders may be made, by consent, where there is some other reason to do so. An obvious example is s 459J of the Corporations Act, which permits the Court may make an order to set aside a creditor's statutory demand where it is satisfied that there is some other reason that the demand should be set aside. The courts typically make orders, by consent, under that section where the parties reach agreement that that should occur. Again, it does not seem to me that that analogy is perfect, because an application under s 445D of the Corporations Act affects parties other than the applicant and the company, in particular, at least indirectly, the company's creditors who may have voted in favour of a deed of company arrangement. 7Nonetheless, I am satisfied that some other reason to set aside the deed of company arrangement is established on narrower grounds in this case. The City is, it appears, the Company's largest single creditor by a substantial margin and asks to have a liquidator appointed to the Company, in the context of complex proceedings between the City on the one hand and the Company and its associates on the other; the Company consents to the appointment of a liquidator and the administrator does not oppose that order; and, notwithstanding that the proceedings were called this morning, no other creditor has sought to oppose the order being made. In the context of the allegations made in the proceedings, but now not to be determined, it seems to me that some other reason to make the order exists, because the parties with the most substantial issues in the proceedings, namely the Company and the City as a substantial creditor, have formed a view, which no other creditor or the administrators contests, that it is appropriate that a liquidator be appointed. For that reason, I am satisfied that an order under s 445D(1)(g) to terminate the deed of company arrangement and to appoint a liquidator should be made. 8Mr Golledge also submitted that a further order should be made, in different form to that originally sought by the City, which would provide that, under s 447A of the Act, Pt 5.3A should operate in relation to the Company so that s 446B and regulation 5.3A.07 do not operate with any effect in relation to the Company. It is necessary to explain the effect which was sought to be achieved by that order as to which Mr Golledge was, properly, transparent with the court. 9In the ordinary course, when the court terminates a winding up under 445D of the Act, s 446B will have the effect that, in the circumstances specified in the regulations, the company will be taken to have passed a special resolution under s 491 of the Act that it be wound up voluntarily. Regulation 5.3A.07(1)(a) in turn provides that a company that has executed a deed of company arrangement is taken to have passed that special resolution under s 491 that it be wound up voluntarily if the court at a particular time makes an order under s 445D terminating the deed of company arrangement. The order sought by the City under s 447A of the Corporations Act would exclude the operation of those provisions, and the City instead seeks an order that the Company be wound up under s 459A of the Act, which provides that the Court may order that an insolvent company be wound up in insolvency. The City supports that result on the basis that, once the deed of company arrangement is set aside, the Company will plainly be insolvent and its winding up, whether a court appointed winding up or a voluntary winding up, will be a winding up in insolvency. 10The consequence of the order sought by the City is, however, primarily directed to the application of the statutory order of priorities in s 556(1) of the Corporations Act, and the City seeks to achieve a position that its costs of the winding up will rank with a high level of priority in the winding up. Mr Golledge put an able argument in support of that proposition, namely, that the City's efforts will have led to the result that the Company will be wound up, in circumstances where that was the relief originally sought by the City, which had served a statutory demand, was averted by the Company's administration and the deed of company arrangement which was challenged in these proceedings. 11I accept, for the purposes of this application, that the Court would have had power to make an order setting aside the deed of company arrangement and order a Court ordered winding up under s 447A of the Corporations Act in this application. For example, in Fortress Credit Corporation (Australia) II Pty Ltd v Octaviar Ltd [2010] QCA 45; (2010) 77 ACSR 339, to which Mr Golledge drew my attention, the Court of Appeal upheld such an order made at first instance, as an order properly within the scope of s 447A of the Act, where its purpose was there to ensure that the winding up would relate back to an earlier date. Mr Golledge properly draws my attention to the fact that the order here would not have that consequence, since, whether the Company's winding up is a Court ordered winding up or a voluntary winding up, the relation-back date will in both cases be the date of the administrators' appointment. 12The administrators, who otherwise had made a submitting appearance, indicated a concern that the form of order sought by the City may have an adverse effect on other creditors, so far as it would promote the priority available to the City's claim for costs and potentially reduce the recoveries that may be available to other creditors. That result would no doubt be mitigated by the extent to which the City is already the most substantial creditor, by a large margin, but it would not entirely be eliminated. 13I have concluded that I should not make the order sought by the City under s 447A of the Corporations Act on a narrower ground. The argument put by the City is that, in substance, a party which seeks to set aside a deed of company arrangement under s 445D of the Corporations Act, and bring about a company's winding up, should be allowed its costs of that application in priority under s 556(1)(b), as would an applicant for a winding up. That proposition has considerable force. However, the legislature could readily have achieved that result by providing that the result of a successful application under s 445D of the Corporations Act was, not to bring about a voluntary winding up of the Company, but indeed to bring about a Court ordered winding up so as to apply s 556(1)(b) in the manner which the City seeks to achieve. The legislature did not take that course. The difficulty with the City's submission, particularly in circumstances where this matter is decided without a merits determination of the complaints that the City has advanced, and instead on the basis that the parties have reached a consensus that a winding up is the preferable result, is that it has too wide an application. The City's position is not readily distinguishable from any other applicant which succeeds in obtaining an order terminating a deed of company arrangement under s 445D of the Corporations Act. I do not consider that the Court's power under s 447A of the Corporations Act should be exercised in a manner that would, in the ordinary course, treat such applicants as entitled to a priority for their costs of the application, in circumstances that the legislature could have, but did not, provide for that result. 14For these reasons, I make following orders: